In a session organized by AMAN to discuss a report on property tax collection challenges and governance
Consensus on the importance of empowering local authorities to lead crisis management in every area
Ramallah – Representatives of the Palestinian Ministry of Finance and other government agencies, municipalities and local authorities, APLA and civil society organizations participated in a meeting organized by the Coalition for Integrity and Accountability (AMAN) to discuss a report entitled Property Tax Collection Challenges and Governance.
Issam Haj Hussein, AMAN’s Executive Director, opened the session by clarifying that the report aims to investigate the reality of property tax collection in the West Bank and the challenges facing the central and local governments. The report also offers recommendations for ameliorating tax collection governance to address existing challenges and increase local authorities’ revenues. Haj Hussein explained that considering the ongoing Israeli occupation violence, national and international experience favors decentralized crisis and disaster management for a more effective response to citizens’ needs. Indeed, the centralized approach has failed throughout past years. Local authorities are more capable of managing crises and relief operations in cooperation with local communities in the areas victim of Israeli occupation aggression.
The report was reviewed by researcher Muayad Afaneh, who explained the importance of the property tax, as it is considered a direct tax, linked to wealth, which makes it fairer than indirect taxes, as it enjoys the inability to transfer its tax burden from the taxpayer to any other person, in addition to targeting “capital” through real estate owners and not the poor and marginalized classes. Afana added that the application of property tax collection is technically beneficial, as it allows obtaining data and statistics on people's wealth and property to review taxpayers' decisions submitted for income taxes and other taxes, as it serves as a control tool that helps the tax administration in the process of combating tax evasion. It is also a vital resource for local authorities to spend on achieving their development goals.
Outdated property tax law undermines tax and social justice
The report found that the property tax legislative framework is outdated, it was enacted in 1954 and isn’t fit for modern times. Furthermore, the context in which it was drafted does not reflect or represent current times. The report highlights that the effective property tax law does not provide for property tax collection by village councils as it applies to municipal areas. This is contrary to good governance since it does not ensure tax or social justice. On another level, valuation processes are flawed and lack standard criteria that adopt the rent value as valuation measurement. Current valuation practices are outdated and governed by weak laws. Moreover, valuation teams need training on valuation theory and practice, including employing technology in the process.
The report addresses the challenges related to the calculation of the shares of the Ministry of Finance and local authorities, which cannot be solved without reforming the applicable property and land tax law. Under the current law, there isn’t any provision that identifies such shares, which undermines governance and compliance. An analysis of property tax collection data between 2019 and 2024 shows low collection levels and accumulated taxpayers' debt.
It should be noted that local authorities’ entitlements are not transferred regularly by the central government, which collects the tax. The revenues are deducted at source by MoF for repayment of local authorities’ debts to the government. For the local authorities without debt to the government, these revenues accumulate as receivable due by the government, which comprises local governments’ ability to implement development projects and provide public services.
Participatory promulgation of a new property tax law
The report proposes several recommendations, most notably the enactment of a new property tax law via a participatory approach that involves the government, the Association of Palestinian Local Authorities (APLA), local governments of all categories, relevant civil society organizations, experts and scholars. The new law should mandate local authorities to collect property tax after settling their debts and promoting their governance systems. The law should apply progressive taxation and set brackets that match revenues in order to institute social justice.
The report also recommends listing all local authorities of all categories in the property tax collection to guarantee social and tax justice with positive discrimination in favor of marginalized communities. It is necessary to revisit the current valuation mechanisms via a specialized study that includes MoF, local governments and other stakeholders.
The Council of Ministers needs to prepare a solid valuation system with clear criteria
The report also proposes that the Council of Ministers prepare valuation mechanisms, including clear and specific criteria. Moreove, until a special property tax law is approved or the current law is amended, there is a need to strengthen governance in property tax collection, by activating valuation committees, strengthening collection methods, and the Ministry of Finance should address the accumulated debts in favor of local bodies instead of collecting property tax, as local bodies rely on these revenues for their development programs and projects and services provided to citizens. In addition, the report recommends that the percentage withheld in favor of the government from the revenues of local bodies to which property tax collection has been transferred should be reduced in order to strengthen the budgets of local bodies to implement their development programs, and that governance in local bodies should be strengthened, and the optimal investment of property tax revenues in development programs and projects should be achieved, and monitoring mechanisms should be activated.
Miscellaneous comments
In his comments, Abelmoimin Afana, Technical Support Officer at APLA, mentioned that COVID, ongoing Israeli escalation in the northern governorates and the Gaza Strip have proven that decentralized operations were more effective in responding to citizens in different regions. He called for adopting decentralized operations management with coordination between central and local governments/ municipalities. Afana also referred to the need to ensure regular transfer of funds between the central government and local authorities through a social contract. Municipalities collect taxes for the benefit of the central government, this acts in service of MoF. Afana stressed that prolonging this arrangement threatens the future of local authorities in Palestine. Afana called on oversight bodies monitoring the process to impose harsher penalties on defaulting municipalities to ensure better role distribution to serve higher interests.
Furthermore, Afana criticized the rate deducted by MoF from property tax, which should be delivered in full to local authorities. Valuation should also be entrusted to local authorities because the know best the region in which the valuation takes place.
Muntasser Rajab from Kafr Albald-Tulkarem Municipality explained that centralization is an obstacle to municipalities and has proven to be ineffective in northern governorates. He reiterated that decentralization isa municipalities requirement so that they can duly perform their duties. Rajab called for empowering municipal staff and automate property tax data and update them regularly. He also stressed that valuation should be the responsibility of local authorities. Mohammed Khalife, corruption risk assessment and research officer at the Anticorruption Commission explained that the outdated law is part of the problem indicating that valuation is a science on its own and requires a three-member committee. He confirmed that valuation has its experts and local and international standards. He called for disseminating the Ramallah Municipality experience where data for 2024 shows a 96% collection rate in spite of the difficult economic conditions.
Dr. Azmi Shuabi, AMAN Board Advisor for Anticorruption Affairs concluded the session by stating that the current Palestinian context and Israeli policies that target resistance infrastructure require the Palestinian Authority to adopt a new approach after the failure of the centralized system. Efforts need to be consolidated with a shift towards decentralization and larger role for local governments in emergency management. It is also important to build municipal staff capacity and ensure their preparedness for rapid response to citizens needs.
To watch the full session: https://www.youtube.com/watch?v=4fS4TBs_3hs
